Kane Co. warned: 'Don't end up ... like Illinois'

Kane board should base budget decisions on what's best for county, experts warn

Tuesday, August 10, 2010

GENEVA -- Illinois is a greater credit risk than some countries, like Iceland and Latvia, which have gone bust, an expert said Monday, giving the Kane County Board a crash course in the state's sobering financial crisis.

It's a risk Kane County is weighing as board members are poised to decide whether to stop providing state-funded social service programs through the Kane County Health Department and transferring responsibility for nearly 8,000 clients to three federally funded agencies. The vote is expected this morning.

Kane County Chairwoman Karen McConnaughay set up Monday's special meeting to give board members additional information about the state's budget crisis amid criticism that the county is not really trying to get expedited funding to save the nine programs that would be transferred.

Essentially, Illinois is the county's partner in providing services, but it is becoming increasingly difficult for the state to hold up its end of the partnership, McConnaughay said.

While the nationwide economic recession technically ended last summer, Illinois continues to have a slow recovery, said Dan R. Long, executive director of the Commission on Government Forecasting and Accountability. Base revenues, including personal income, sales and business taxes, were down $2 billion in fiscal year 2010, he said. Those are factors that can be tied to the recession.

A weak economy, high unemployment and decreasing revenues means Illinois has a "huge cash-flow problem," said Long, who oversees the bipartisan commission based in Springfield.

To make things worse, Illinois had a $6.4 billion deficit carried forward to its Fiscal Year 2011, meaning the state has a total projected deficit of $13 billion. The deficit includes payments for pension plans, education and social services, all of whom are owed millions of dollars, Long said.

A practice Illinois has employed in the recent past is borrowing money to pay back what it owes, he said. That practice, however, is taking a toll, because the financial services companies that rate the state's credit risk just lowered Illinois' bond rating, which makes the cost of borrowing more expensive. Every time the state borrows money, it hurts its bond rating and its borrowing costs rise, he said.

Another expert, Brian Costin, director of outreach for the Illinois Policy Institute, said it's like the state taking out a subprime loan mortgage to pay its debts.

Illinois now has the second-lowest bond rating of any state in the country, behind California, both experts said.
"The way we balance the budget is by not paying vendors," Long said.

That's the reason Kane County is concerned about continuing to accept grants or contracts for programs provided by the health department.

Cheryl Pattelli, executive director of Kane County's finance department, said there's been a 15 percent decrease in the amount of state funding and revenues for all programs the county provides for the state. Last year, the state had a record of making its payments erratically, she said. There are other payments due from the state that have become "uncollectible," she said.

The amount of uncollectible payments over the last three years totals $2.1 million, she said. This is money the county "will never see," she said.

"It is very difficult for us to budget with the volatility of payments," she said.

Monday's panel of speakers included AFSCME Council 31 benefits director Hank Scheff. He said the situation facing Illinois is dire after years of a "mirrors and smoke" approach toward the budget. But Kane County is in the same boat as the state's 101 other counties. What would happen if all those other counties decided they didn't want to provide social services anymore, he asked. He said the union could help secure expedited payments.

McConnaughay disputes the idea the county could get expedited payments. She contacted the Department of Human Services and found there are no guarantees the county would get the money it is owed. Additionally, it is becoming clear that the expedited payments program -- aimed at speeding up payment to governments and municipalities facing an emergency -- is getting overwhelmed by requests, she said.

Until Illinois takes steps to find solutions to its financial crisis -- which could come in the form of tax increase, a modernized tax structure, addressing pension payments and instituting regulatory reforms -- Kane County is best left to make its own decisions about its financial health, Costin said.

"Don't end up in a business situation like the state of Illinois," he said, adding the county board needs to make the hard decisions and consider other alternatives, like privatizing or outsourcing programs or services.
County board members listened to the experts for two hours. At times, some clasped their hands, while some sat with stern expressions on their faces.

County Board member Mike Kenyon, R-South Elgin, said the county cannot follow down the state's path. "We can't afford to do that. We owe the people of Kane County to stay on a sound financial path," he said.

"I am frustrated by the lack of leadership and courage that is being shown," Drew Frasz, R-Elburn, said. "This ship is sinking and the band played on, and (this) can't wait until after the election for action."

Monday's meeting helped put things in perspective, Frasz said later. He said all of the state's 102 counties are in the same situation. The situation facing the health department may be repeated as the county begins looking at next year's budget and tries to find ways to fund its other departments, he said.